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Why companies are freezing salaries (with employee consent)

Many workplaces are choosing to dial back salaries – but how do you introduce this to employees?

Nov 7, 2016

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One of the questions asked each year on the submission form for Alberta’s Best Workplaces is about salary increases, on the assumption that the bigger the increase, the better the workplace. But this year, and last, the judges noticed a distinct lack of raises. In some cases, salaries were reduced.

It’s no mystery why it’s happening: a bad economy, reduced revenues and lowered profits are causing a lot of employers to dial back on salaries, but it’s not like they’re all springing this on employees. Many approached staff and got them onboard with the move before making it. And Alison McMahon, CEO of Edmonton-based human resources consultancy TwoFold, says it’s not that hard to do. It just requires clear, complete communication. “The employer has to be as open and honest as possible,” she says. “They don’t necessarily share the financials, but be direct about the economic climate the company is facing. People can wrap their heads around that.”

McMahon recommends some form of all-employee communication, whether it’s a town hall meeting or whether department managers do their own smaller version of that meeting. “It’s a big deal to employees,” she says. “It should be done with face-to-face communication.”

Don’t make a promise about when you’ll reverse the move. “Say how much you’re decreasing salaries and say you’ll review the policy at an appropriate time,” she says, “but don’t promise when it will go back to normal.” The only promise should be to continue to communicate. Progress updates, and clarity about how the change will affect each employee, will be very important.

And it can be done with a little give and take to make it more palatable: Several employers have given an additional flex day, say one every two weeks, in exchange for the freeze. But be forewarned, McMahon says, some people are going to like the arrangement so much they’ll want to keep their flex day in perpetuity.